STRATEGIC FORESIGHT 2015 - South East Europe

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STRATEGIC FORESIGHT 2015 South East Europe

TOP RISKS – TOP CHALLENGES – TOP OPPORTUNITIES


REPUBLIC OF SLOVENIA MINISTRY OF ECONOMIC DEVELOPMENT AND TECHNOLOGY

STRATEGIC FORESIGHT 2015 - South East Europe TOP RISKS – TOP CHALLENGES – TOP OPPORTUNITIES

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Acknowledgement Title: STRATEGIC FORESIGHT 2015: SOUTH EAST EUROPE Subtitle: Top Risks – Top Challenges – Top Opportunities ISSN: 2385-9296 Prepared and Published by: Institute for Strategic Solutions Erbežnikova 2 1000 Ljubljana, Slovenia W: www.isr.si E: isr@isr.si

Editor: Tine Kračun Authors: Tine Kračun, Maja Bratuša, Gregor Umek Design: Boštjan Bratuša and Institute for Strategic Solutions Year of Publication: 2014 Issue: 1st Issue Number of Copies: 100 Processed and Printed by: Tiskarna Demago

No part of this publication may be reproduced or utilized in any form or by any means, electronic or mechanical including photocopying, recording or by any information storage and retrieval system, without permission in writing from the publishers.

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About the Institute of Strategic Solutions ISR (Institute for Strategic Solutions) is a consulting think-tank based in Ljubljana, Slovenia, that supports and encourages international cooperation to foster sustainable, economic and social development. ISR supports businesses with Strategic Consulting, International Insight and Strategic Foresight services. ISR’s vision is to become the leading knowledge centre and the reference point for the support and promotion of international economic cooperation, entrepreneurship and sustainable development in Slovenia and the wider region Through professional support to the business sector ISR’s mission is to encourage focused education, forums, networking and other projects based on sustainable and economic development in Slovenia and the wider region.

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Table of Contents 1 Foreword

05

2 Methodology

07

3 Top Risks, Top Opportunities and Top Challenges in South East Europe in 2015

12

4 Overview of South East European Countries in 2015

15

5 Strategic Foresight for South East Europe

17

5.1 Romania

17

5.2 Bulgaria

23

5.3 Montenegro

29

5.4 Croatia

35

5.5 Macedonia

41

5.6 Albania

47

5.7 Turkey

53

5.8 Serbia

59

5.9 BiH

65

5.10 Greece

71

5.11 Kosovo

77

6 Literature

4

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1 Foreword People Need to Start Feeling the Economic Growth Statistics might be showing economic growth but there are rising political and social tensions. If the local business and the population overall do not start feeling the impact of the economic growth, there will be social unrests, which will hamper the economic progress. As we enter 2015, it is very difficult to establish whether the people in South-Eastern Europe should be optimistic or scared of the coming year. While there is a light feel of better times to come, that sensation is primarily based on statistical numbers, which show that growth is picking up again. However, unemployment, average income and poverty rates remain at worrying levels. The consequence is low public trust, which could lead to dissatisfaction and increasing tensions leading to political instability. At the beginning of 2014, we forecasted economic growth in the region. Apart from the countries where flooding caused damage to the businesses and population, the rest will end 2014 with a GDP higher than forecasted. This presents a good starting point for the regional economy to pick up again in 2015. However, problems remain at the social level. Political uncertainties, caused by social dissatisfaction, are the main risk for the region in 2015. Unemployment levels are high in most of the countries while people that do have jobs, earn very little. Citizens are disillusioned by the low standards of living. Paradoxically, people are becoming cynical by reports of corruption cases, which they see in the news, but are a result of the fight against corruption that the countries are more determined to deal with. All this amounts to lower level of public trust in politicians and state institutions, as well as consumer trust. It could be a ticking bomb for social unrest – which some countries have experienced already in 2014. On the other hand, politicians need to do more for long-term prosperity in the region. For that, people need to start earning more and more opportunities are needed for entrepreneurs and investors. The only perspective for SEE is to be catching up with the Western World and getting closer to EU development average. This is the main challenge for SEE in 2015. Economic growth is a solid start, but it needs to manifest itself in lowering unemployment first and then in increasing consumer and public trust. Unfortunately, the economic growth we have seen in 2014 has not reached that stage yet.

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Part of the reason is low economic growth. Developing countries of SEE need higher GDP growth in order to catch up with the West. States are aware of the problems and are trying to increase growth by attracting foreign investment. As most countries will be experiencing growth for the second consecutive year, they are becoming more interesting to foreign investors. The interest is further accelerated by incentives in terms of tax reliefs and easements of doing business. However, problems remain on the structural level, which businesses consider before investing. Also, the discontent within the population is still growing and uncertainties are quite high, making investments risky. The year 2015 will be a year when business and politics will matter. Economic uncertainties will be at lower levels due to GDP growth, however high unemployment and low public trust will cause social and political uncertainties to rise. Hence, investment environments will remain moderately stable or moderately uncertain. In 2015 significant improvements or deteriorations are unlikely, but the year will show the path on which these countries will go towards 2020. Let 2015 be good for business! Tine KraÄ?un, Director of Institute for Strategic Solutions

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2 Methodology Assessment of Investment Environment - a model for forecasting political, economic and social trends - is a methodology developed by the Institute for Strategic Solutions. The methodology is based on the theory that environments, in which companies invest, are primarily influenced by social and political factors. As such, the assessment is primarily based on political and social variables and secondarily on economic and financial variables of a specific country. The methodology was developed based on ISR’s research conclusions, that it is politics that primarily moves markets. Economic indicators are a result of political decisions. They both influence the social environment. The Institute for Strategic Solutions developed the Assessment of Investment Environment to support investors who operate multi-nationally, or wish to expand their operations to foreign markets. This product identifies and analyses five main indicators (Politics, Rule of Law, SocioEconomic Conditions, Conflicts, Investment Impediments) of a country’s investment environment. Based on that, the model calculates the expected level of Political, Economic and Social Uncertainties in a specific country. Development of the Assessment of Investment Environment takes into account a wide range of indicators that impact a country’s overall investment environment. These include Poverty; Unemployment; Public Opinion and Trust in politics and institutions; Tax Burdens; respect of the Rule of Law; Rigidity of the Bureaucratic Apparatus; Transparency of all Branches of Power; and various Social Tensions within the society. These, in symbiosis with the general economy figures, formulate and determine the attractiveness of the Investment Environment of a specific country or region. Assessment of Investment Environment methodology is based upon ISR’s hypothesis that socio-political factors have the greatest impact on the (in)stability of the investment environment. The methodology can also be applied to the specific operations of particular companies. Based on their business model, the results show the company’s weaknesses towards specific investment environment indicators and their exposure to specific uncertainties. Our two-part analysis combines qualitative and quantitative methods and enables easy, quick and reliable comparison of different investment environments. The first part of the methodology is based on 25 variables that are joined in five main Investment Environment Indicators, while the second part integrates those variables into three individual groups of uncertainties.

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Indicators joined in the Assessment of Investment Environment are the following:

1.

Politics

2.

Rule of Law

3.

Economic-Social Conditions

4.

Investment Impediments

5.

Security Situation

ISR analysts regularly collect political, economic and social data on the countries of interest and convert them into variables. Each variable is scored. The higher the score the probability that a specific variable could present a problem to investments is higher, while lower scores highlight a lower possibility for problems. Variables included in the Politics, Conflicts and partly Investment Impediments as well as Rule of Law are made on the basis of analysis of the available information that ISR follows on daily bases. All the variables related to specific financial and economic variables are made on the basis of objective data carried out by different International Organisations, Statistics Offices and other institutions. The results are presented graphically in the form of a net, which is divided into four sections – light green, dark green, yellow and red. If an indicator is in the light green circle, this means there is a relative small chance for an obstacle in the investment environment of a country. The more the Indicator graduates towards the outside lines of the net, the more unstable a country is, therefore chances of instability are greater. The second phase of the Assessment of Investment Environment is to determine the existence of three groups of Uncertainties. The graph shows the level of uncertainties for a specific category, its possibility and impact. The more the bubble moves towards top right, the higher the uncertainty. In a general assessment, the impact and the probability are linear. They can be non-linearly defined in a specific company case studies, where the assessment is adapted to their business model.

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Analysed groups of Uncertainties are:

1.

Political Uncertainties

2.

Economic Uncertainties

3.

Social Uncertainties

Each group suggests which of the analysed uncertainties of the investment environment are likely to exist in a specific country and its potential impact. By identifying these uncertainties we can determine which one of the three can have the largest impact on the overall health of the investment environment and on specific operations. The methodology enables us to divide the analysed investment environments according to their stability in four groups presented in the table below:

Stable Investment Environment

Moderately Stable Investment Environment

Moderately Uncertain Investment Environment

Uncertain Investment Environment

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More Stable Investment Environment or Individual Uncertainties

= + ≠

Less Stable Investment Environment or Individual Uncertainties No Change in Stability of Investment Environment or Individual Uncertainties Decrease of Uncertainties Increase of Uncertainties No Change of Uncertainties

The methodology of determining the stability of an investment environment of individual countries also makes it possible to compare different investment environments between countries and to determine annual movements. The methodology enables us to predict if the stability of the overall investment environment will improve, deteriorate or remain the same, as well as analyse how the three groups of Uncertainties (Political, Social and Economic ones) will act in a before determined time frame.

Five Main Indicators of Investment Environment Assessment POLITICS Assessment of Politics Indicator depends mostly on a Government’s stability and its overall performance. It also analyses the ability of a Government to end its term and the potential conflicts between the coalition and opposition parties. The assessment of Politics Indicator goes broader than merely analysing the Government and its work, as it also takes into account the performance of the bureaucratic apparatus, media freedom, the role the army and state of democracy. RULE OF LAW This Indicator focuses on the level of independence of the Judiciary. It analyses the uniformity and consistency of a country’s legal system as well as obstacles that investors are faced with when trying to

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acquire different business permits. Corruption plays an important variable of the Rule of Law Indicator, as it has the ability to seriously reduce the attractiveness of a country’s investment environment for investors. It also influences the work of the state’s important institutions and the public’s trust in the country as a whole. ECONOMIC-SOCIAL CONDITIONS This Indicator offers a unified overview of the economic environment of a specific country. Economic variables, such as GDP Growth, Inflation and Public Debt form the overall economic picture of a country. Economic variables are often the first information that is readily available to investors. Various social variables, such as Unemployment Rate, Poverty Rate and Purchasing Power also play an important part in determining this Indicator. INVESTMENT IMPEDIMENTS This Indicator evaluates all variables that directly affect the investment environment, but are not analysed within the Politics and Economic-Social Indicators. Exchange rate risks, diplomatic pressures, unexpected legislation changes are some of the evaluated variables. SECURITY SITUATION Security Situation Indicator evaluates Internal and External Conflicts of a country. Internal Conflicts encompass the possibility of inner state violence (social riots, ethnic, religious and other tensions). External conflicts are related to a possibility of a country being involved in any way in bilateral or multilateral conflicts (armed or unarmed).

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Top Risks, Top Opportunities and Top Challenges in South East Europe in 2015

Top Risks In 2015, South East Europe will be exposed to rising Political Uncertainties. This comes as no surprise as the countries in the region have gone through turbulent political times, which resulted in fragile government coalitions and fragmented political arenas. Aforementioned conditions are a suitable playground for permanent political dribble and populism, which at the end can aggravate implementation of social and economic reforms. Despite elections in 2014, Bulgaria and Romania still lack political stability. This is a result of a weak government coalition led by Boyko Borissov in Bulgaria and difficult cohabitation between centre-right president Klaus Iohannis and centre-left Prime Minister Victor Ponta in Romania. Rise of populism is most evident in Greece with the growing popularity of the radical left Syriza and the extreme right Golden Dawn. Lack of much needed structural reforms and uncompetitive environment keep high unemployment and poverty rate in the region. Standstill in implementation of structural reforms is most evident in Croatia and BiH. Croatia is facing speculations as being the EU’s next Greece. BiH remains one of the poorest countries in Europe with omnipresent high unemployment and is essentially a failed state. Institutional and structural weaknesses and corruption hamper business environments in Bulgaria and Romania. Both countries also recorded highest levels of poverty in the EU. Poor standard of living, chaotic political situation and mass disillusionment with the political elite can raise social tensions in 2015. These are most likely in Turkey due to the intensions of the ruling AKP to increase presidential powers of Recep Tayyip Erdogan, which will strengthen his influence over the judiciary, media, and the central bank. Region is faced with high ratios of non-performing loans; in some countries these amount to more than 20 % of all loans. High ratios of non-performing loans could further deteriorate bank balance sheets in Serbia, Croatia, Romania, Albania and Greece. This can avert further private investments and domestic consumption and can consequently jeopardise further economic growth.

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Top Opportunities In 2015, the countries of SEE will have the opportunity to make the business environment more attractive for foreign investors. EU funding will be one of the main sources of investments and will drive economic growth in 2015. For 2014-2020 EU Cohesion Policy, Croatia has been allocated around 8.6 billion EUR, Romania 23 billion EUR and Bulgaria 12 billion EUR. Companies will be able to participate in public tenders to acquire co-financing for their projects. Countries in the region are still in the development phase and labour costs are low across all levels of education, which makes them very competitive with western neighbours. Many sectors in the region, such as telecommunications, energy, and transportation, are in the process of privatisation, which offers opportunities for foreign companies to enter the markets. Greece started with a wide ranging privatisation programme that includes rail and road transport, airports and ports, utilities, gaming and public real estate holdings. Some countries such as Croatia, Serbia and BiH are facing severe problems finding suitable strategic partners for their companies. Privatisation could also lead to better corporate governance and liberalisation of local markets. Local governments try to motivate foreign direct investments through various incentives: simplified administrative procedures, free-trade zones, tax incentives and exemptions, reduced tariff and nontariff barriers. Macedonia has one of the most attractive business environments in the region - it was ranked 30th amongst 189 economies in Doing Business 2015 (World Bank). The country significantly improved processes of registering companies, offers good protection for minority investors and has one of the most favourable tax systems in the region.

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Top Challenges Global

financial

crisis

and

uncompetitive

environment have contributed significantly to deterioration of public finances in many countries of the region. Consequently, many governments will have to focus on implementing structural reforms, such as pension reform, labour market reform, healthcare reform, reorganisation and reduction of the public sector. As part of the agreement with the IMF, Serbia will have to reorganise public sector and reduce the number of employees by 25,000 in 2015 as well as lower the pensions and wages. Additional austerity measures will have to be implemented in Romania and BiH, both under IMF monitoring. Structural reforms and austerity measures can lead to a decline of public confidence in politics and a switch of public opinion against the integration with EU. Public discontent is most evident in Greece, where people completely lost confidence in politics and calls to leave the EU are becoming louder. Omnipresent corruption remains one of the main challenges in the region. Governments are addressing it but will need to be more decisive and comprehensive at it if they wish to attract more foreign direct investments and speed up the integration towards EU. Unresolved relations amongst countries contribute to the escalation of populism and incidents, which hamper mutual trade relations and hinder EU integration. This is most evident in the long lasting disputes between Macedonia and Greece, and Serbia and Kosovo. The Macedonian-Greek dispute also blocks the country’s entrance to NATO, where Macedonia has been a membership candidate since 1999. Status of Kosovo remains the main obstacle for Serbia on its path towards the EU. Due to unresolved border issues between Croatia, BiH, Montenegro and Serbia, we expect further delays and obstacles in accession negotiations.

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4 Overview of South East European Countries in 2015 INVESTMENT ENVIRONMENT General Assessment Romania

Moderately Stable

Bulgaria

Moderately Stable

Montenegro

Moderately Stable

Croatia

Moderately Stable

Macedonia

Moderately Stable

Albania

Moderately Uncertain

Turkey

Moderately Uncertain

Serbia

Moderately Uncertain

BiH

Moderately Uncertain

Greece

Moderately Uncertain

Kosovo

Moderately Uncertain

2015 vs 2014

= = =

Political Uncertainties

Economic Uncertainties

Social Uncertainties

+ + + + + ≠ + + ≠ + -

+ + + ≠ + + -

+ + + + ≠ + + + + + 15


South East European countries in 2015 will have either Moderately Stable Investment Environment or Moderately Uncertain Investment Environment. The worrying factor is that for the majority of countries analysed in this report, Investment Environment in 2015 will be less stable than it was in 2014. The stability of the Investment Environment will improve only in two countries most often viewed as the poorest European countries - Kosovo and BiH. However, they still remain at the bottom of the Stability of Investment Environment scale, compared to other SEE countries. Nevertheless, changes in the stability of Investment Environments in 2015 will be only moderate and will not result in changing the General Assessment of the Investment Environment Stability of an individual country. Turkey will be the only exception, as it is expected that its Investment Environment in 2015 will become Moderately Uncertain, while in 2014 it was Moderately Stable. In 2014 three EU Member States - Romania, Bulgaria and Croatia – as well as Montenegro and Macedonia will have Moderately Stable Investment Environments. It is important to highlight that both Macedonia and Croatia are borderline countries, meaning the stability of their Investment Environment could quickly deteriorate in case of an unexpected socio-political event. If this occurs, their Investment Environment could become Moderately Uncertain. Due to the still weak economic environment, Economic Uncertainties are expected to increase in Croatia, making it even harder for the newest EU Member State to compete with the EU average. Political Uncertainties are expected to worsen in all EU Member States, while Social Uncertainties will worsen in Bulgaria, Romania and Greece. Due to the expected increase in Political and Social Uncertainties in 2015, Greece’s Investment Environment stability will decrease most severely. Serbia and Montenegro, the two countries that are already negotiating with EU for a full Membership in the Union, will be faced with exacerbation of their Investment Environment stability in 2015. In both countries Political, Economic as well as Social Uncertainties are expected to worsen. No change in the stability of the Investment Environment is predicted for Albania in 2015, while Turkey’s Investment Environment is expected to be more uncertain due to the expected aggravation of all three groups of Uncertainties.

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Number of Inhabitants: 21.3 million GDP per Capita: 8,910 $ Currency: Romanian Leu Member of the EU since 2007

5.1 Romania 17


Romania Number of Inhabitants: 21.3 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

3.5

2.4

2.5

Inflation (%)

4.0

1.4

2.9

Public Debt (gross, % GDP)

39.4

39.9

39.6

Unemployment (%)

7.3

7.2

7.1

+

GDP per Capita: 8,910 $ Currency: Romanian Leu Member of the EU since 2007

-

Social Uncertainties

+

Source: IMF

After three successive governments in one year, Romania in 2012 finally got a stable government led by the Prime Minister Victor Ponta (USD). However, fragility of the new centre left coalition between Social Democratic Union (USD) and National Liberal Party (PNL) was evident in PNLs resignation from the government coalition in February 2014. Ponta was forced to negotiate with the parliamentarians of the Hungarian Democratic Union of Romania in order to keep the majority. Klaus Iohann’s (PNL) victory in presidential elections in November 2014, over Victor Ponta, will make it even more difficult for the Prime Minister to pass laws in the National Assembly, which implies there will be further political tensions in 2015.

INVESTMENT ENVIRONMENT IN 2014 In 2014, the most problematic Indicators of Investment Environment were Politics, Rule of Law and Investment Impediments. This comes as no surprise since the country was marked by a presidential campaign and experienced constant government turbulences. Political instability, institutional and structural weaknesses, and corruption remain the main obstacles to a friendlier and a more attractive investment environment. Economic and Social conditions remained stable as growth was driven by domestic consumption and the unemployment rate started to decline. 18


Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

-

Social Uncertainties

+

Romania Number of Inhabitants: 21.3 million GDP per Capita: 8,910 $ Currency: Romanian Leu Member of the EU since 2007

Economic Environment In 2014, growth was driven by domestic demand. This comes as a result of an increase in minimum wage and civil service retirement pensions as well as a decrease in food prices. In addition, Central Bank lowered its key interest rate, which encouraged household consumption and investment by making borrowing in the local currency more attractive. Romania has stabilised its public deficit in accordance with the Maastricht Treaty convergence criteria, but was

Political Environment

facing challenges in balancing the current account.

Presidential elections took place in November 2014. In

Government continued with privatisation in the energy

the first round Victor Ponta, the current Prime Minister

and transport sectors as part of the bailout agreement,

and leader of the Social Democratic Party won by a

for a sum of four billion EUR in 2013 by the IMF and the

margin of 10 points, and most opinion polls pegged him

European Commission.

as the favourite in the second round. Following large protests on how Ponta’s government organised the

Social Environment

elections in the diaspora, Klaus Iohannis, mayor of Sibiu

Romania has the EU’s second highest rate of poverty

and leader of the Christian Liberal Alliance, managed to

risk or social exclusion, affecting 41.7 percent of the

win 55 percent of the vote. Victory of the centre-right

population. It has the highest incidence of rural poverty

President Iohannis marks the beginning of a complex

(over 70 %), and one of the largest gaps in living and

decision making in the country as the President

social standards between rural and urban areas.

shares power with the Parliament, which is dominated by Ponta’s centre left majority. Iohannis’s victory was a result of a wide mobilisation of Victor Ponta’s opponents. These include a number of intellectuals, journalists and country’s social media active middle class representatives.

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Romania Number of Inhabitants: 21.3 million

Uncertainties 2015 vs 2014

Political Uncertainties

+

GDP per Capita: 8,910 $ Currency: Romanian Leu Member of the EU since 2007

Economic Uncertainties

-

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 In 2015, Romania’s Investment Environment will be exposed to challenges in the investment, legal, macroeconomic and political aspects. Although parliamentary elections are scheduled for 2016, presidential victory by the rightwing candidate Klaus Iohannis will cause additional Political Uncertainties. According to Romania’s constitution, the president has the power to reject legislation and send it back to the parliament, where the defeated Prime Minister’s centre left coalition still holds a comfortable majority. Based on the past experience when cohabitation between the centre - left government and the centre - right former president Basescu escalated to impeachment, we expect hindrance of legislative processes in 2015. Repatriation of profits on foreign direct investment will put pressure on the unbalanced current account, which is encumbered by the recovery of domestic demand and the rise of imports. Analysis show that exports will continue to rise as a result of growth in Germany, Romania’s main trading partner. Thus, the speculated contraction of the German economy in the coming years could affect Romanian exports. High levels of corruption, inefficient government bureaucracy, political instability, inconsistency within the judicial system and delayed payments for public sector contracts will hamper business and investment environment and cause less inward FDI flows. TOP RISK • Political Instability • Corruption • High Ratio of Non Performing Loans

TOP OPPORTUNITIES • EU Funding (23 Billion EUR through 2014 - 2020) • Privatisation • Relatively Large Domestic Market • Low Labour Costs • Highly Educated and Skilled Workforce

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TOP CHALLENGES • Increasing Bureaucracy • Lack of Transperancy • Access to Financing • Inadequate Supply of Infrastrucure • Second Highest Rate of Risk Poverty or Social Exclusion in EU


Romania

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

-

Number of Inhabitants: 21.3 million

Social Uncertainties

+

GDP per Capita: 8,910 $ Currency: Romanian Leu Member of the EU since 2007

Deterioration of the Security Situation Indicator is expected In 2015 the Investment Environment will become less stable than it was in 2014. We expect a deterioration in the security and political situation due to the rising tensions between Punta’s and Iohanni´s supporters, which could result in riots. Discontent is also expected as a result of austerity measures imposed by the IMF. Economic-Social Conditions will remain moderately stable due to sustainable growth and low level of public debt.

Political Environment In May 2014, Iohannis PNL and Democratic Liberal Party (PDL) formed a new centre-right opposition coalition. Alliance was created to more effectively oppose Prime Minister’s Victor Ponta’s ruling USD. The two opposition parties decided to join forces after receiving just 15 % and 12 % respectively in the EU elections, compared to 37.5 % for the USD. The formation of the opposition alliance is likely to benefit from a joint support base. We predict party tackle to increase Political Uncertainties.

Key Political Developments in 2015

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Romania Number of Inhabitants: 21.3 million GDP per Capita: 8,910 $

Uncertainties 2015 vs 2014

Political Uncertainties

+

Currency: Romanian Leu Member of the EU since 2007

Economic Uncertainties

-

Social Uncertainties

+

Economic Environment In 2015, macroeconomic indicators, such as economic growth, rate of unemployment and ratio of public debt will remain stable and thus Economic Uncertainties will be slightly less present. Non-performing loans exceeded 20 % in 2014. We expect the Romanian government to carry out deleveraging process of the corporate sector. Additional risk lies in high ratio of loans that are denominated in foreign currency (more than 60 % of loans). This exposes banking sector to additional external shocks. The robust capital buffers and lower exposure to deleveraging parent banks could move Romanian banking sector onto a firmer footing in 2015.

Social Environment IMF and the EU Commission urged Romania not to increase pensions and minimum wage, if the country wants to keep the budget deficit under control. Despite national target of reducing the number of poor by 580,000 until 2020, 8.9 million people still live in poverty. If austerity measures will be fully implemented, there is a possibility of further social discontent and tensions.

Key Economic and Social Developments in 2015

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Number of Inhabitants: 7.2 million GDP per Capita: 7,328 $ Currency: Bulgarian Lev Member of the EU since 2007

5.2 Bulgaria 23


Bulgaria Number of Inhabitants: 7.2 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

0.9

1.4

2.0

Inflation (%)

0.4

-1.2

0.7

Public Debt (gross, % GDP)

16.4

25.2

25.1

Unemployment (%)

13.0

12.5

11.9

GDP per Capita: 7,328 $

+

Currency: Bulgarian Lev Member of the EU since 2007

-

Social Uncertainties

+

Source: IMF

After 18 months of repeated Government changes, early parliamentary elections took place on 5 October 2014. Elections resulted in a highly fragmented Parliament with eight parties, hence the formation of a coalition Government became a difficult and long process. Boyko Borissov, leader of the centre-right GERB party, won 32.7 % of the vote, more than twice as much as the Bulgarian socialist Party (BSP). Borissov formed a coalition agreement with the centre-right Reformist bloc. But as those two centre-right forces have 107 seats, short of the majority of 121, two more parties agreed to support the cabinet, centre-left ABV and nationalist Patriotic Front. The latter offered its support, but it will not be represented in Government, which means the Government has only 118 out of 240 seats in the National Assembly and is thus a minority government.

INVESTMENT ENVIRONMENT IN 2014 In 2014, the most problematic Indicators of Investment Environment were Politics and Rule of Law. This comes as no surprise as the country was marked by election campaigns and faced with constant government turbulences.

Political

instability, inefficient bureaucracy and corruption remain the main obstacles to a more stable and attractive investment environment. Economic and Social Conditions remained quite stable as growth was driven by domestic consumption, revival of European demand and private spending. 24


Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

-

Social Uncertainties

+

Bulgaria Number of Inhabitants: 7.2 million GDP per Capita: 7,328 $ Currency: Bulgarian Lev Member of the EU since 2007

Economic Environment In 2014, the government increased social spending, which resulted in amplified household income and consequently greater domestic demand. Growth was also driven by the increase of exports, due to rise in European demand, which represents 60 % of all exports. The sectors that performed extremely well were agriculture and copper mining. Private investments have also recovered as a result of better absorption of the EU Cohesion Funds and resumed investments of Bulgarian companies. This comes as no surprise as

Political Environment

their bank deposits represent more than 19 % of GDP.

Bulgaria had constant political turbulences since February

Bulgaria has one of the lowest public debts in EU and

2013, when protests against the electricity price increase

recorded surplus in external accounts in 2014.

forced Boiko Borissov’s government to step down. In May 2013, early general elections were held. Elections resulted

Social Environment

in a weak coalition between the Bulgarian Socialist Party

Eurostat released data showing that 48 % of all

(BSP) and the Movement for Rights and Freedoms (MRF)

Bulgarians live on the edge of poverty and risk social

led by Plamen Oresharski. Government had a minority in

exclusion, which places Bulgaria as one of the poorest

the Parliament and was forced to rely on extreme right

EU member state. 60 % of the pensioners in Bulgaria

nationalist Ataka party, which spurred public discontent

live well below the poverty line.

and two no-confidence votes. Nomination of Delyan Peevski as the head of the Bulgarian state security agency and the defeat of BSP in the European elections, led to the resignation of Oresharski cabinet on July 23, which paved the way for the early elections in October. Mass protests and constant political turbulence unveiled the widespread disillusionment with the political establishment.

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Bulgaria Number of Inhabitants: 7.2 million

Uncertainties 2015 vs 2014

Political Uncertainties

+

GDP per Capita: 7,328 $ Currency: Bulgarian Lev Member of the EU since 2007

Economic Uncertainties

-

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 In 2015, Bulgaria’s Investment Environment will be exposed to challenges in political, legal and macroeconomic aspects. Although early parliamentary elections were held in October 2014, minority coalition between centreright GERB party, Reformist bloc, centre-left ABV and non-official support of nationalist Patriotic Front implies further political instability in 2015. Due to a highly uncertain political landscape, which can avert potential foreign investors and prolong implementation of structural reforms, there is a high possibility that Bulgaria’s public finance will deteriorate in 2015. Political instability generates distrust among business investors. Challenges for foreign investors also include complicated and non-transparent tendering processes; unpredictable legislative environment; intellectual property rights violations; slow judicial processes; and spreading organised crime and corruption. In order to attract more FDI, Bulgarian Government established a very advantageous taxation system; lowered the cost of establishing a company; undertook privatisation; set a fixed company tax rate at 10 %; and reduced costs of employment.

TOP RISK • Political Instability • Social Tensions • Corruption • Deflation

TOP OPPORTUNITIES • EU Funding (12 Billion EUR through 2014 - 2020) • Adventageous Taxation for Investors • Low Operating Costs • Highly Educated and Skilled Workforce

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TOP CHALLENGES • Complicated Bureaucrcy • Lack of Transperancy • Access to Financing • Very Slow and Innefficient Judiciary System • One of the Poorest EU Member States


Bulgaria

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

-

Number of Inhabitants: 7.2 million

Social Uncertainties

+

GDP per Capita: 7,328 $ Currency: Bulgarian Lev Member of the EU since 2007

Partial Deterioration of the Security Situation Indicator is expected In 2015 the Investment Environment will remain on the same level as it was in 2014. However, we expect a decline in the security and political situation as a result of rising political tensions and possible public discontent with inefficient government. People’s dissatisfaction is also expected as result of the government’s efforts to reduce the budget deficit in line with the Maastricht criteria. A large number of the population is already living on the verge of poverty.

Political Environment Since most minority governments in the last two years ended their term prematurely, ISR believes this is likely to happen in the case of the new center-right government. The mismatch between coalition parties was already evident during the coalition negotiations, when GERB and Reform bloc had to overcome a number of important disagreements. In addition to that, Borissov’s minority government is exposed to further search for compromises and parliamentary support for governmental legislation. Hence, Political Uncertainties will increase in 2015.

Key Political Developments in 2015

27


Bulgaria Number of Inhabitants: 7.2 million GDP per Capita: 7,328 $

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

+

Currency: Bulgarian Lev Member of the EU since 2007

-

Social Uncertainties

+

Economic Environment In 2015, macroeconomic indicators, such as economic growth, current account balance and ratio of public debt will remain stable and Economic Uncertainties will be slightly lower. Prospects by IMF for Bulgaria remain stable and optimistic and Economic Uncertainties should decrease. However, there are many predictions that the budget deficit will climb from 1.9 % in 2013 to 2.8 % in 2015. S&P downgraded Bulgaria’s sovereign credit rating to BBB- (one notch above junk). Latter could raise debt servicing costs over the coming months.

Social Environment In order to keep the budget deficit under control, the Bulgarian government will not be allowed to abandon austere fiscal policy imposed by the EU Commission. Current deflationary conditions and the central bank’s inability to lower interest rate can threaten further recovery in household consumption.

This, alongside the fact that

almost half the population will remain living on the verge poverty, increases predicted Social Uncertainties for 2015.

Key Economic and Social Developments in 2015

28


Number of Inhabitants: 779,987 GDP per Capita: 6,811 $ Currency: Euro Candidate for EU Membership

5.3 Montenegro 29


Montenegro Number of Inhabitants: 779,987

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

3.5

2.3

3.4

Inflation (%)

2.2

-0.6

1.3

Public Debt (gross, % GDP)

58.0

60.3

62.9

Unemployment (%)*

19.5

19.1

18.2

+

GDP per Capita: 6,811 $ Currency: Euro Candidate for EU Membership

+

Social Uncertainties

+

Source: IMF and European Commission

Montenegro opened accession negotiations with the EU in June 2012. It is speculated the country will join the EU together with Serbia, which will not happen before 2020. Although Montenegro was not as affected by the economic-financial crisis as the rest of the region, unemployment rate and public debt have in the last two years risen significantly adding pressure to the country’s public finance. Due to the planned highway Bar-Boljare, public debt will rise even further indicating that public finances will remain weak. The costs of the project, which will be financed through the next 25 years by the Chinese, will amount to 25 % of the country’s GDP. Public consumption remains weak, while tourism and hydroelectric sector remain the driving forces of the country with the second highest GDP per capita in the region.

INVESTMENT ENVIRONMENT IN 2014 In 2014 Montenegro’s Investment Environment was relatively attractive for investors. Out of all five indicators, the Rule of Law Indicator was the least stable one. Corruption on all levels and organised crime remained one of the biggest problems and will also present one of the toughest negotiation chapters in the process of joining the EU. Security Situation was stable as there were no significant protests or tensions in 2014, apart from the political tensions between the Democratic Front and the ruling DPS. 30


Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Montenegro

Social Uncertainties

+

Number of Inhabitants: 779,987 GDP per Capita: 6,811 $ Currency: Euro Candidate for EU Membership

Economic Environment Although economic growth in 2014 was satisfactory, weak Economic Environment in 2014 was mainly a consequence of the quickly raising public debt and unemployment rate. Although the IMF and the EU warned Montenegro about the possibility of its public debt exploding, due to the high cost of planned highway between Bar and the Serbian border, the Parliament decided this project was of highest importance. Widely spread corruption and organised crime, together with the overall low respect for the rule of law, raised

Political Environment

Economic Uncertainties to slightly higher levels.

Political Environment in Montenegro was stable due to the strong Government led by the everlasting

Social Environment

Prime Minister Milo Đukanović, who has a strong party

Social Uncertainties in 2014 were as present as the

and public support. In the past he was suspected

Political Uncertainties mainly due to the continuous

of corruption and this continued to cause clashes

high levels of unemployment. According to the

between the political parties in 2014, raising Political

European Commission, the unemployment rate in 2014

Uncertainties. The Democratic Front continued to

is projected to stop at 19.1 %. In the last two years, the

call for snap elections. The party’s boycott of the

number of young unemployed people has considerably

Parliament’s work, together with the political crisis

increased. Official data shows the unemployment of

caused by the lack of consensus about Podgorica’s

young people up to the age of 30 exceeded 33 % in

mayor after the local elections, made the Political

2013. Domestic spending remained unsatisfactory, the

Uncertainties worse. Political Environment was also

number of weak loans was rising, causing some social

challenged by the situation in Russia in 2014. Traditional

tensions but they were not as harsh as in BiH or Greece.

Montenegro’s ally continued to lobby against the country’s EU and NATO membership. The two countries were also involved in smaller diplomatic disputes.

31


Montenegro Number of Inhabitants: 779,987

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

+

GDP per Capita: 6,811 $ Currency: Euro Candidate for EU Membership

+

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 Due to the rising public finances instability; the high unemployment rate which hinders growth in domestic spending; and the expected diplomatic pressure from the EU and Russia (especially against the country’s NATO membership); the Investment Environment in Montenegro in 2015 will be slightly less stable than it was in 2014. The country will successfully continue to negotiate for the EU membership and could become a NATO member, which is one of Montenegro’s strategic objectives. The country’s economic growth will continue, but the Government is expected to fail at consolidating public finances, meaning that Montenegro will be subject to external influences in 2015. From the political aspect, 2015 should not bring significant changes for Montenegro. Đukanović’s Government will continue with the politics it has been leading since the elections. Due to ideological differences between Đukanović’s DPS and Miodrag Lekić’s Democratic Front, further calls for early parliamentary elections from the latter are expected. Since Đukanović remains to be one of the most popular politicians in the country and has strong political support in the country’s president Filip Vujanović, we do not expect snap elections in Montenegro to happen in 2015.

TOP RISK

TOP OPPORTUNITIES

TOP CHALLENGES

• Raising Public Debt

• NATO Membership

EU Negotiations

• Growing Unemployment Rate

• Tourism

• Relations with Russia

• Infrastructure Projects

• Fight against Corruption and Organised Crime

32


Montenegro

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Number of Inhabitants: 779,987

Social Uncertainties

+

GDP per Capita: 6,811 $ Currency: Euro Candidate for EU Membership

Weaker Investment Environment In 2015, the Investment Environment in Montenegro will be less stable and more uncertain than in 2014. Expected diplomatic pressures from the EU on one side and Russia on the other, together with the traditionally weak payment discipline, will weaken the Investment Impediments Indicator. Nevertheless, the country will remain attractive for foreign investors. Potential deterioration in Montenegro-Russia relations could lower the attractiveness of the country’s business-investment environment.

Political Environment The Government will remain stable, however speculations about snap elections caused by the Democratic Front are expected to continue. There is a possibility of Montenegro joining NATO in 2015. There will be increased pressures from international organisations to improve the legislative system. Due to the speculated high levels of corruption in politics, we expect these pressures will increase Political Uncertainties.

Key Political Developments in 2015

33


Montenegro Number of Inhabitants: 779,987 GDP per Capita: 6,811 $

Uncertainties 2015 vs 2014

Political Uncertainties

+

Currency: Euro Candidate for EU Membership

Economic Uncertainties

+

Social Uncertainties

+

Economic Environment The majority of economic indicators should improve in 2015, but the building of the highway from Bar to the Serbian border will substantially raise the already high public debt and hence increase Economic Uncertainties. Montenegro will remain attractive for foreign investors, as FDI traditionally amounts to around 15 % of GDP. Tourism and industrial production will remain the driving force of the economy, while due to weak domestic consumption a rise in domestic loans is expected. This will put additional pressure on the already relatively weak banking sector.

Social Environment We do not expect much change in Social Uncertainties in 2015. Social Environment will remain relatively stable. We do not expect greater tensions or social uprisings. However, unemployment rate will remain problematic, hindering the growth of domestic consumption and lowering the potential the country has to decrease the poverty levels.

Key Economic and Social Developments in 2015

34


Number of Inhabitants: 4.3 million GDP per Capita: 13,920 $ Currency: Croatian Kuna Member of the EU since July 2013

5.4 Croatia 35


Croatia Number of Inhabitants: 4.3 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

-0.9

-0.8

0.5

Inflation (%)

2.2

-0.3

0.2

Public Debt (gross, % GDP)

60.2

66.3

68.5

Unemployment (%)

16.6

16.8

17.1

GDP per Capita: 13,920 $ Currency: Croatian Kuna Member of the EU since July 2013

+

+

Social Uncertainties

-

Source: IMF

In July 2013 Croatia became the 28th EU Member State. The country joined the EU at a time of weak health of its economy, battling with recession for the past six years. Economic indicators for 2014 show that Croatia will be the only EU Member State with negative GDP growth. Positive effects of EU membership for the country remain vague, while speculations about Croatia becoming EU’s next Greece are more persistent. Besides negative economic growth, Croatia is also dealing with high unemployment rate, weak domestic consumption, raising public debt, low competitive economy and relatively unattractive business environment. Although economic forecasts for 2015 are slightly more optimistic, it is highly unlikely Croatia will pick itself up in 2015.

INVESTMENT ENVIRONMENT IN 2014 In 2014 Croatia’s Investment Environment was moderately stable. The country battles with recession and the consequences of the economic-financial crisis are still very much present. Consequently out of all five indicators, the Economic-Social Environment Indicator was by far the least stable. Due to the strong Kukuriku coalition, the Political Environment was the most stable in 2014, but was challenged by the unstable public opinion, outside pressures and low economic activity.

36


Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Social Uncertainties

-

Croatia Number of Inhabitants: 4.3 million GDP per Capita: 13,920 $ Currency: Croatian Kuna Member of the EU since July 2013

Economic Environment Weak Economic Environment in 2014 was the consequence of the persistent recession, growing public debt and raising unemployment rate. Due to poor labour market conditions, more Croats are leaving the country, causing additional problems for the economy. In order to reduce the high public debt, which is exceeding 80 % of GDP, the Government needed to adopt additional austerity measures that resulted in even lower domestic spending. Russian embargo introduced in August 2014 lowered the exports, the leading force of its economy.

Political Environment

Due to the overall poor health of Croatia’s economy,

The ruling Kukuriku coalition remained strong in 2014,

Economic Uncertainties presented the biggest obstacle

regardless of the corruption scandal that dismissed

for domestic and foreign investors, thus making

its Minister of Finance Slavko Linić. Government’s

Croatia’s market one of the least attractive in the EU and

savings agenda, led by Brussels, and tensions between

in South East Europe in 2014.

political parties, were evident also in public opinion polls. HDZ was gaining in popularity, while SDP and

Social Environment

other governmental parties were losing the support of

Social Uncertainties were widely spread in 2014,

the voters. This was most evident in May’s European

primarily due to the high unemployment rate. According

Elections. Political Uncertainties in 2014 were relatively

to IMF, almost 17 % of the active population is jobless,

low. Notable corruption affairs, weak respect for

which results in growing disappointment with the

the rule of law and unstable public opinion, which

Government and is manifested through regular protests.

in 2014 was a clear indication that political cards

Ethnic tensions remain evident mainly in Vukovar,

in Croatia in the near future will change, had the

where the bilingual signs were violently removed on

biggest influence on Political Uncertainties in 2014.

different occasions, causing tensions among the Croats and Serbs living in Vukovar.

37


Croatia Number of Inhabitants: 4.3 million

Uncertainties 2015 vs 2014

Political Uncertainties

+

GDP per Capita: 13,920 $ Currency: Croatian Kuna Member of the EU since July 2013

Economic Uncertainties

+

Social Uncertainties

-

STRATEGIC FORESIGHT 2015 In 2015 Croatia’s Investment Environment will continue to face similar challenges as it did in 2014. Although GDP growth will slowly pick up in 2015, the six-year-long recession has left a major impact on the country’s economy. The Government will have to adopt additional austerity measures in order to reduce the quickly growing public debt. The adoption of various reforms, such as the Labour Market and Pensions Reform, which the general public and the trade unions do not support, is needed if Croatia wishes to avoid international bail-out and reach sustainable economic growth. The path to economic recovery, which is slower compared to other East-European Countries, could alter Croatia’s political agenda. Next parliamentary elections need to be carried out by 20 February 2016, therefore politics in 2015 will be marked by the pre-election campaigns. Considering the latest public opinion polls that clearly show the rightwing HDZ and the left-wing ORaH are gaining support, while the left-wing SDP is losing it, the next parliamentary elections could bring Croatia a more right-oriented coalition.

TOP RISK • Continuation of Recession • Growing Unemployment • International Aid Help (EU and IMF Package)

TOP OPPORTUNITIES • Oil and Natural Gas in the Adriatic Sea • EU Funds

TOP CHALLENGES • Public Debt Reduction • Labour Market and Pension Reform • Economic Recovery • Pre-parliamentary Elections Campaign

38


Croatia

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Number of Inhabitants: 4.3 million

Social Uncertainties

-

GDP per Capita: 13,920 $ Currency: Croatian Kuna Member of the EU since July 2013

Improvement of the Economic-Social Conditions Indicator is expected In 2015, the stability of the Investment Environment will remain as it was in 2014. However, some changes related to the stability of its indicators can be expected. Due to the upcoming Parliamentary elections, and the expected growing populism, the Politics Indicator will deteriorate. By contrast the EconomicSocial Conditions will be more stable, due to expected economic growth and a more stable public opinion.

Political Environment Croatia will remain politically a relatively stable country. The upcoming parliamentary elections will increase Political Uncertainties in 2015, due to expected growth of populism. Unofficial campaigns will last the whole year. Populism will be present in attacks towards the Kukuriku coalition. Public opinion should, together with public trust, improve and could indicate the political changes we expect for Croatia.

Key Political Developments in 2015

39


Croatia Number of Inhabitants: 4.3 million GDP per Capita: 13,920 $

Uncertainties 2015 vs 2014

Political Uncertainties

+

Currency: Croatian Kuna Member of the EU since July 2013

Economic Uncertainties

+

Social Uncertainties

-

Economic Environment Although economic growth will pick up in 2015, Economic Uncertainties will increase. The long-term recession changed the Croatian economy drastically and the country will not be able to recover in just one year. Public debt will continue to grow, which could, if necessary measures are not taken, result in a bail-out. This could worsen the already low investment attractiveness of Croatia. Potential rise of political instability will also present a big influence on Economic Uncertainties.

Social Environment Unemployment will continue to grow but due to the expected Labour Market reform, we expect the growth in public opinion trust that will result in fewer social uprisings and conflicts. The planned wage rise will be too low to stimulate domestic spending. However, we expect domestic consumption to pick up towards the end of 2015. The presence of Social Uncertainties in 2015 will be slightly lower compared to 2014.

Key Economic and Social Developments in 2015

40


Number of Inhabitants: 2.06 million GDP per Capita: 4,935 $ Currency: Macedonian Denar Candidate for EU Membership

5.5 Macedonia 41


Macedonia Number of Inhabitants: 2.06 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

2.9

3.4

3.6

Inflation (%)

2.8

1.0

1.5

Public Debt (gross, % GDP)

35.9

36.3

37.5

Unemployment (%)*

30.0

28.9

28.0

GDP per Capita: 4,935 $ Currency: Macedonian Denar Candidate for EU Membership

+

+

Social Uncertainties

+

Source: IMF

Macedonia has been a candidate for EU membership since 2005 but has made little progress towards the EU. This is mainly because of the name dispute with Greece due to which Macedonia is referred to as the Former Yugoslav Republic of Macedonia. The dispute also blocks the country’s way to NATO, as Macedonia has been a candidate for membership since 1999. Despite rather good economic performance and steady economic growth, Macedonia’s unemployment and poverty rate remain high. The country still has one of the lowest GDP per capita in the region. Grey economy presents over 20 % of the country’s GDP. There is high presence of corruption, ineffective legal system and restricted freedom of the media. These are all reasons that are slowing down further socioeconomic development of the country that has the best conditions for domestic and foreign investors in the region.

INVESTMENT ENVIRONMENT IN 2014 Security Situation and Investment Impediments Indicator in Macedonia were the most stable ones in 2014. This comes as no surprise since there were no major conflicts and the Government has for years been adopting measures that boost the attractiveness of the Investment Environment. Although the country has a stable GDP growth and a manageable public debt, high unemployment and poverty rate influence the instability of the Economic-Social Conditions Indicator. The general respect for the Rule of Law remained weak and corruption was widely spread. 42


Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Macedonia Number of Inhabitants: 2.06 million

Social Uncertainties

+

GDP per Capita: 4,935 $ Currency: Macedonian Denar Candidate for EU Membership

Economic Environment In 2014 Macedonia had one of the strongest GDP growths in the region and stable public finances. Investment environment was attractive and the Government adopted many laws to attract domestic and

foreign

investors.

Consequently

Economic

Freedoms in 2014 improved and the Heritage placed Macedonia on a high 43rd place among 186 countries, making Macedonia the highest ranked country in the region. However, the almost 30 % unemployment rate (youth unemployment exceeds 50 %) and similarly

Political Environment

high poverty rate, had a great impact on the presence

Political Uncertainties in 2014 were rather high. In

of Economic Uncertainties. The traditional large gap

April, general elections were held to elect the President

between rich and poor, high presence of corruption

and members of parliament. Elections did not bring

and organised crime sparked many ethnic and other

any changes as Gjorge Ivanov (VMRO-DPMNE) once

social conflicts in 2014.

again won the presidential race and VMRO-DPMNE the parliamentary elections. Nikola Gruevski remained

Social Environment

the Prime Minister. Traditional tensions between the

Ethnic divisions between Macedonia’s Slavic and ethnic

Macedonian and Albanian political parties and the

Albanians have historical roots and are seen in every

authoritarian rule of the Prime Minister Gruevski were

aspect of the socioeconomic as well as political life and

again evident and are based on populism and ethnic

greatly affect the quality of life in the country. In 2014 the

divisions. The Government’s work was blocked by the

protests against the conviction of six ethnic Albanians,

opposition for most of the year, as Zoran Zaev and his

jailed for the murder of five ethnic Macedonians in 2012,

SDSM refused to accept the general elections results.

increased the animosity between Macedonians and

Calls for early parliamentary elections were numerous

Albanians even further.

and the Government was often accused of restricting media freedom and deepening ethnical divide.

43


Macedonia Number of Inhabitants: 2.06 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

+

GDP per Capita: 4,935 $ Currency: Macedonian Denar Candidate for EU Membership

+

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 Investment Environment in Macedonia in 2015 will remain the most attractive in the region. The expected rise of socio-political ethnic tensions will hinder further socioeconomic development in Macedonia, and the stability of the Investment Environment will slightly deteriorate. From the macroeconomics aspect, GDP will continue to grow, public debt will remain manageable, while FDIs and exports are expected to rise. Due to a high poverty and unemployment rate, and the rising public disappointment with the overall state of the country, economic growth could be challenged by possible social tensions. The country’s path towards the EU and NATO membership is expected to remain at a standstill, as Greece will continue to pressurise Macedonia to change its name. As long as Gruevski and his VMRO-DPMNE continue to stay in power, a solution of the dispute with Greece is not to be expected. Due to the way the Prime Minister Gruevski is strengthening his control over all four branches of power, internal as well as diplomatic pressures from the EU and other international organisations are expected in 2015.

TOP RISK • Growing Party Tensions could lead to Snap Elections • Growing Ethnic Tensions between Albanians and Macedonians

TOP OPPORTUNITIES •

Further Improvement of

TOP CHALLENGES •

EU Negotiations and NATO

the already very friendly

Membership in Connection with

Business Environmnent

Name Conflict with Greece • Fight against Corruption and Organised Crime • High Unemployment and Poverty Rate • Media Freedom • Achieving Effective Democracy

44


Macedonia

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Number of Inhabitants: 2.06 million

Social Uncertainties

+

GDP per Capita: 4,935 $ Currency: Macedonian Denar Candidate for EU Membership

Socio-Political Tensions Expected In 2015, the Investment Environment in Macedonia is expected to be less stable than in 2014. Expected rise of ethnic tensions could result in different forms of protests. Unemployment and poverty rate will generate pressure on Economic-Social Conditions and Security Situation Indicators. Strained innerparty relations are expected to continue, which will result in rising political tensions, lowering the country’s investment appeal.

Political Environment The Prime Minister Gruevski, who has been in power since 2006, will continue with his politics of division. Further clashes between the opposition and coalition parties are expected. This could result in snap elections, due to the fact that Zaev and his party do not accept the 2014 election result. If Gruevski, keeping in mind he has significant control over the media and judiciary, manages to throw out of the Parliament the opposition MPs, the already fragile democratic system will become even less democratic. This could put additional pressure on the country. Hence, Political Uncertainties will increase in 2015.

Key Political Developments in 2015

45


Macedonia Number of Inhabitants: 2.06 million GDP per Capita: 4,935 $

Uncertainties 2015 vs 2014

Political Uncertainties

+

Currency: Macedonian Denar Candidate for EU Membership

Economic Uncertainties

+

Social Uncertainties

+

Economic Environment Due to the expected GDP growth, we expect the majority of economic indicators to improve in 2015. Although in the first eight months of 2014, Macedonia attracted less FDI compared to 2013 (Central Bank Data), we expect this trend to reverse in 2015. Due to the Russian embargo for EU members we expect Macedonian exports to grow and become one of the main generators of growth. Domestic spending will continue to be subjected to the money Diasporas are sending to their families. However, Political and Social Uncertainties will spur a rise in Economic Uncertainties.

Social Environment Due to the high unemployment and poverty rate, Social Uncertainties will remain high, increasing further in 2015. Growing dissatisfaction with old political faces will put additional pressure on Social Uncertainties. Growing ethnic tensions will challenge the stability of the social environment in 2015. Protests and social uprisings are to be expected.

Key Economic and Social Developments in 2015

46


Number of Inhabitants: 2.8 million GDP per Capita: 4,610 $ Currency: Albanian Lek Official EU membership candidate since 24 June 2014

5.6 Albania 47


Albania

Uncertainties 2015 vs 2014

Number of Inhabitants: 2.8 million

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

0.4

2.1

3.3

Inflation (%)

1.9

1.8

2.6

Public Debt (gross, % GDP)

70.5

72.1

71.6

Unemployment (%)

15.6

14.0

13.5

GDP per Capita: 4,610 $ Currency: Albanian Lek Official EU membership candidate since 24 June 2014

Social Uncertainties

Source: IMF

After more than five years of standstill, Albania has been accepted as an official EU membership candidate on 24 June 2014. The decision of European ministers can be attributed to the implementation of structural reforms in the country. These include the adoption of legislation that improves the workings of the Parliament, judiciary and public administration. Notwithstanding this improvement, the EU concluded that Albania must intensify its anticorruption efforts and fight against organised crime and reform anti-discrimination policies. Soundness of Albania’s democratic institutions was confirmed at the parliamentary elections, which took place in September 2013. The election results have brought victory to the left wing coalition Government led by the Prime Minister Edi Rama who after many years in office replaced Sali Berisha.

INVESTMENT ENVIRONMENT IN 2014 In 2014, the most problematic Indicator of Investment Environment was Rule of Law.

This comes as a result of

omnipresent corruption, presence of organised crime, huge informal sector and a judicial system governed by privilege. Due to democratically conducted elections in 2013, relatively stable macroeconomic environment and partial harmonisation of legislation with European standards, other indicators remain at the levels of moderate uncertainties.

48


Albania

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

Number of Inhabitants: 2.8 million

Social Uncertainties

GDP per Capita: 4,610 $ Currency: Albanian Lek Official EU membership candidate since 24 June 2014

Economic Environment After slowdown in growth in 2013, the economy was recovering in 2014. This is primarily due to better economic conditions in Italy, Spain and Greece (which are Albania’s main trading partners) as well as increased exports of minerals to China and improved domestic consumption. The latter is due to increased transfers, essentially from expatriate workers in Italy, and a 5 % increase in civil servants wages and pensions. Private investments and credit growth are hindered by a fragile

Political Environment

banking sector. Deterioration of bank balance sheets is

Despite being an official candidate, Albania’s negotiation

presented in high rate of non-performing loans, which

process was hindered by the opposition of Great Britain,

reached 24 % of all loans. Albania was facing rapid

Germany and France, who are reluctant to another

growth of public debt, which in 2014 amounted to more

EU enlargement. Domestic politics were marked by

than 70 % of GDP.

endemic corruption in Albanian politics. Deputy Finance Minister Drtian Hila and Socialist MP Rakip Suli were

Social Environment

fined for failing to file their declarations of private

Regardless that the country’s economy has improved

interests, as required by law.

Albanian Parliament

during the last few years, Albania still remains one of

approved amendments to a law aimed at combating

the poorest countries in Europe. In 2014, one in seven

organised crime. The law aims to tackle corruption by

inhabitants still lived below the poverty threshold and

confiscating assets belonging to individuals who appear

nearly 50 % of the GDP is made up by the informal

to have an unjustified economic benefit as a result

sector.

of alleged criminal activity. As recognition of recent reforms in the country, EU accepted Albania as official EU membership candidate on 24 June 2014. Despite this progress, full membership is possible in distant future.

49


Albania Number of Inhabitants: 2.8 million

Uncertainties 2015 vs 2014

Political Uncertainties

GDP per Capita: 4,610 $ Currency: Albanian Lek Official EU membership candidate since 24 June 2014

Economic Uncertainties

Social Uncertainties

STRATEGIC FORESIGHT 2015 In 2015 Albania’s Investment Environment will be exposed to challenges in macroeconomic and legal aspects. Prospects for Albania remain stable and optimistic, however its GDP growth could decline in 2015. This could come as a result of weakening demand from Italy and Greece, which will restrict exports and remittance inflows and consequently lead to deterioration in domestic consumption. Non-performing loans ratio will rise above 25 %, which will restrict business expansion plans in 2015. Unemployment rate could rise as a result of Government arrears to businesses, which at 5 % of GDP can hamper business confidence and private sector debt repayments. Although Albania is an official EU candidate, full EU membership remains a distant prospect. The main problems that will hinder Albania’s path towards the EU are a fast growing public debt, widespread corruption, organised crime and ineffective judicial system.

TOP RISK • Omnipresent Corruption • Widely Present Organised Crime • High Ratio of Non-performing Loans

TOP OPPORTUNITIES • Harmonisation of Legislation as Part of Accession Talks with EU

• One of Least Developed Countries in Europe

• Significant Natural Resources

• Inadequate Infrastructure

• Low Labour Costs

• Economy Heavily Dependent

• Reduced Non-tariff Barriers • Legislative Reforms to Attract More FDI

50

TOP CHALLENGES

on Few EU Trade Partners • Lack of Independence In Judiciary • Media Freedom


Albania

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

Number of Inhabitants: 2.8 million

Social Uncertainties

GDP per Capita: 4,610 $ Currency: Albanian Lek Official EU membership candidate since 24 June 2014

Economic-Social Conditions to worsen, Rule of Law to improve In 2015 the Investment Environment will remain Moderately Uncertain, as in 2014. We expect a decline in macroeconomic stability as a result of deterioration of bank balance sheets, leveraged corporate sector and fragile domestic demand. As part of accession efforts, we expect partial improvement of the Rule of Law Indicator.

Political Environment Prime Minister Edi Rama will have to tackle the problem of increasing public debt and speed up institutional reforms. Reforms should improve inefficient government bureaucracy, judicial system, education system, tax system and limit corruption. Left wing coalition is stable so we do not expect any changes in balance of power at national level in 2015. Despite the local elections in 2015 political rivalry should be moderate. Political Uncertainties will remain at the moderate level.

Key Political Developments in 2015

51


Albania

Uncertainties 2015 vs 2014

Number of Inhabitants: 2.8 million

Political Uncertainties

GDP per Capita: 4,610 $ Currency: Albanian Lek Official EU membership candidate since 24 June 2014

Economic Uncertainties

Social Uncertainties

Economic Environment Due to high non-performing loan ratio (above 25 %) Albanian Government will probably have to carry out recapitalisation of the banks and deleveraging process of the corporate sector. Foreign financial aid is possible. FDI has been growing since 2010 and reached more than 20 % of the country’s GDP in 2014. To the contrary of some other forecasts, ISR believes the FDI inward flows will rise in 2015 due to better macroeconomic conditions of Spain, Italy and Greece. In order to attract more FDI, Albanian government could implement liberal reforms of economic system and reduce the time to obtain construction permit, electricity and property registration. Due to forecasted high economic growth in 2015, we estimate that Economic Uncertainties will not change.

Social Environment Weak credit flows from banks and stagnant wage will decrease household disposable incomes, thus limiting consumer’s propensity to spend. The high unemployment could fall to 13.5 % in 2015, thus Social Uncertainties remain at a relatively stable level.

Key Economic and Social Developments in 2015

52


Number of Inhabitants: 76.5 million GDP per Capita: 10,815 $ Currency: Turkish Lira Candidate for EU Membership

5.7 Turkey 53


Turkey Number of Inhabitants: 76.5 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

4.0

3.0

3.0

Inflation (%)

7.5

9.0

7.0

Public Debt (gross, % GDP)

36.3

33.6

33.2

Unemployment (%)

9.0

9.5

10.0

GDP per Capita: 10,815 $ Currency: Turkish Lira Candidate for EU Membership

+

+

Social Uncertainties

+

Source: IMF

After years of booming economy, in 2014 the rate of growth started to deteriorate as a result of weak domestic demand. Household consumption suffered under the effects of the depreciation of the Turkish lira, high inflation and high interest rates. Turkey has been for many years a candidate for the EU membership, but negotiations remained in deadlock. The membership in the EU seems less and less likely as a result of institutional and economic crisis in the Euro area. In order to make further steps to meet the EU criteria, Turkey must make progress in respecting the principles of the rule of law and separation of powers, as well as the independence of the judiciary.

INVESTMENT ENVIRONMENT IN 2014 In 2014, most problematic Indicators of the Investment Environment were Politics and the Rule of Law. This comes as a result of rising populism due to the presidential and local elections in 2014, high level of corruption and lack of judiciary’s independence. Possibility of conflicts has increased. Dissatisfaction of the population with corruption scandals of the ruling Justice and Development Party (AKP) and Turkey’s decision to participate in coalition against ISIS deteriorates the Security Situation Indicator. Economic – Social Conditions Indicator remains stable due to sustained economic growth and low level of the government’s gross debt. 54


Turkey

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Number of Inhabitants: 76.5 million

Social Uncertainties

+

GDP per Capita: 10,815 $ Currency: Turkish Lira Candidate for EU Membership

Economic Environment Declining economic growth has made it difficult to achieve reduction in unemployment, which reached 9 % in 2014. The country’s dependence on capital inflows makes the economy highly vulnerable to external shocks. The gradual monetary tightening by the US Federal Reserve has already resulted in recent significant capital withdrawals. Turkish lira is under pressure due to a vulnerable exchange rate, high level of external deficit

Political Environment Despite the widespread social tensions and calls for a change of government, the former Prime Minister Recep Tayyip

and monetary policy of central bank, which cut its rate three times in 2014, despite high inflation.

Erdoğan, was elected President, receiving 52 % of the votes at

Social Environment

the first round of elections held on 10 August 2014. Erdogan’s

According to the Turkish Ministry of Development, a

party AKP has consolidated its leading position also on the

total of 16.3 % of the Turkish population lives below the

local level, winning the local elections held at the end of March

poverty line. Unemployment rate, high level of poverty

2014. On 12 October candidates backed by AKP won eight

and leveraged households decreases consumer

out of 10 seats in an election for the High Board of Judges and

spending.

Prosecutors (HSYK), a body that oversees the country’s judiciary.

financial soundness of households as credit card loans

This was a key victory in the AKP’s efforts to get rid of the

rose by 77 % from 2010 to end of 2013; households’

Gulenists - followers of an influential cleric who spearheaded

debts already present 50.4 % of disposable income.

Additional risks lie in deterioration of

a corruption investigation against AKP officials in 2013. The pressure of the masses has increased considerably during the presidential campaign, because many members of the educated and urban population opposed Erdogan’s candidacy for the President. Educated elite is discontented with the arbitrary, conservative and undemocratic policy of the ruling party AKP, which threatens the principles of a secular republic.

55


Turkey

Uncertainties 2015 vs 2014

Number of Inhabitants: 76.5 million

Political Uncertainties

+

GDP per Capita: 10,815 $ Currency: Turkish Lira Candidate for EU Membership

Economic Uncertainties

+

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 In 2015 Turkey’s Investment Environment will be exposed to challenges in the internal political scene, the macroeconomic environment and foreign policy. Although presidential and local elections were held in 2014, Turkey’s 18th general election is due to be held on 13 June 2015. Despite winning the presidency, Erdogan will not let go of his influence in AKP. This implies a continued influence over the judiciary, media and central bank, which can result in even greater discontent of Turkish people. Macroeconomic environment will remain fragile due to the country’s dependence on foreign capital. The country remains highly vulnerable to external liquidity conditions, leveraged households and consequently weakening domestic demand, rising corporate foreign debt, and substantial current account deficit. In the international community, Turkey will have to manage between commitments in US coalition against Islamic State on one hand and government’s peace talks with the Kurdistan Workers Party (PKK) on the other.

TOP RISK • Highly Leveraged Households and Corporate Foreign Debt • Rising Social Tensions • Uncertainty Regarding the Exchange Rate • Kurdish Issue in Context of Geopolitical Stability

56

TOP OPPORTUNITIES • Tax Exemptions and Other Incentives for FDI • Young Workforce and Geographical Location as a Prime Hub for Regional Market Access • Second Largest Construction and Contracting Sector

TOP CHALLENGES • Excesive Bureaucracy • Sudden Changes to Legislation and Regulations • Refugees from Syria and Iraq


Turkey

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Number of Inhabitants: 76.5 million

Social Uncertainties

+

GDP per Capita: 10,815 $ Currency: Turkish Lira Candidate for EU Membership

Deterioration of Most Indicators Expected In 2015 the Investment Environment will become less stable than it was in 2014. We expect a decline in investment confidence as a result of destabilising political developments and further deterioration of security situation. Economic forecasts are stable, but the Economic-Social Conditions Indicator will deteriorate, due to the expected worsening of social variables.

Political Environment General elections and anticipated constitutional amendments, which will enable Erdogan to retain a degree of control over the government, will denote the political situation in 2015 and increase Political Uncertainties. These changes could revive the tensions within the population. Erdogan’s increased powers and probable victory of the ruling AKP in general elections, could consolidate his influence over other branches of power and the media. Passive stance of Turkish government in the US coalition against the Islamic State can jeopardise the precarious peace process with Kurdish PKK and rise demands for independence among the local Kurdish population.

Key Political Developments in 2015

57


Turkey Number of Inhabitants: 76.5 million GDP per Capita: 10,815 $

Uncertainties 2015 vs 2014

Political Uncertainties

+

Currency: Turkish Lira Candidate for EU Membership

Economic Uncertainties

+

Social Uncertainties

+

Economic Environment Although economic growth will remain sustainable in 2015, Turkey’s Government will have to change the country’s growth model, driven by foreign borrowing to fund a rapid expansion of domestic debt. Rising corporate foreign debt increases companies’ exposure to the exchange rate risks. We predict the Economic Uncertainties will increase next year also due to the Syrian political crisis, which can hinder the expansion of foreign trade to the Middle East, as well as a slow economic recovery of the EU, Turkey’s main trading partner. As a result of political tensions, we expect worsening of the business environment.

Social Environment In the context of highly leveraged households, strong income inequality and relatively high unemployment, which exceeds 18 % among youngsters, we expect an increase in Social Uncertainties. Uncertainties may also increase on the border with Syria where 1.4 million refugees from Syria and Iraq are accommodated, making this an extremely unstable area.

Key Economic and Social Developments in 2015

58


Number of Inhabitants: 7.18 million GDP per Capita: 5,924 $ Currency: Serbian Dinar Candidate for EU Membership

5.8 Serbia 59


Serbia Number of Inhabitants: 7.18 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

2.5

-0.5

1.0

Inflation (%)

7.7

2.3

3.4

Public Debt (gross, % GDP)

65.8

75.6

79.6

Unemployment (%)

21.0

21.6

21.8

GDP per Capita: 5,924 $ Currency: Serbian Dinar Candidate for EU Membership

+

+

Social Uncertainties

+

Source: IMF

In 2014 Serbia formally started accession negotiations with the EU. Although historically Serbia has strong ties with Russia, EU membership is now one of its most important strategic goals. In the next couple of years Serbia expects to attract more investments from the EU, especially in the energy, infrastructure and agricultural sector. In the last decade, Serbia had a stable 6 % annual economic growth but the economic and financial crisis hit the country hard. It weakened Serbia’s public finances, the number of the unemployed increased and the domestic consumption decreased. Corruption, organised crime and unresolved relations with Kosovo continue to be a problem. Due to the close ties with Russia on one side and the EU on the other, different pressures are expected to strengthen in the next couple of years. This could have serious consequences for Serbia’s politics and the economy.

INVESTMENT ENVIRONMENT IN 2014 Investment Environment in 2014 was Moderately Uncertain. High and still growing public debt, high unemployment rate, diplomatic pressures, systematic corruption and low respect for the Rule of Law are the variables to blame for the instability of the EconomicSocial Conditions Indicator and Rule of Law Indicator. Due to the parliamentary elections in 2014, and the victory of Aleksandar Vučić, Politics Indicator in 2014 was the most stable. Security Situation Indicator was satisfactory, although normalisation of relations with Kosovo was temporarily frozen. 60


Serbia

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Number of Inhabitants: 7.18 million

Social Uncertainties

+

Political Environment

GDP per Capita: 5,924 $ Currency: Serbian Dinar Candidate for EU Membership

Due to the inability of the Government to consolidate public finances, Serbia was financed by the IMF from 2009 to 2011 and a new agreement with the IMF was signed in late November 2014. Privatisations of the state-owned companies continued, but at a slower than anticipated pace. The value of the Serbian Dinar in 2014 marked one of the lowest rates against the Euro in history. This increased Economic Uncertainties in the country. The Russian South Stream project, which could lower the high unemployment rate and increase Serbia’s FDI levels, increased the uncertainties when it was cancelled in December 2014.

Due to the low presence of Political Uncertainties, Political Environment in 2014 was stable. Snap elections

Social Environment

in April brought Aleksander Vučić and his SNS to power.

Due to the weakened Economic Environment and

His commitment to fight against corruption gained a lot

additional austerity measures, Social Uncertainties

of attention from the EU, resulting in evident progress

increased during 2014. Unemployment rate remained

in accession negotiations. It established Vučić as the

high and the trend of rising poverty rate was recorded.

most popular politician in Serbia. The Government

Some conflicts, especially between Serbia and Kosovo

was stable and Vojislav Šešelj’s return from the Haag

as well as between Serbia and Albania - that broke out

and his populist statements could not jeopardize it.

after the football match between the two countries in November - created serious ethnic and other social

Economic Environment

pressures. The decreasing public support for EU and

After the spring floods, Economic Uncertainties

NATO membership was also one of the variables that

increased severely. The already weak economy marked

had a great impact on Social Uncertainties in Serbia in

by the growing public debt, high unemployment

2014.

and poverty rate, became even more vulnerable.

61


Serbia

Uncertainties 2015 vs 2014

Number of Inhabitants: 7.18 million

Political Uncertainties

Economic Uncertainties

+

GDP per Capita: 5,924 $ Currency: Serbian Dinar Candidate for EU Membership

+

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 Prospects for Serbia in 2015 are negative. Economic growth will be subject to the 2014 floods damage. The cost of repairs caused by the floods is expected to lower the expected GDP growth. The latest agreement between the IMF and the Serbian Government will put additional short-term pressure on public finances. Due to the planned austerity measures (lowering the wages and pensions, reducing the public sector), raising public dissatisfaction is expected. Serbia will remain caught between the EU and Russia, which could even further lower the public support for the country’s EU membership. Nevertheless, we expect Serbian politicians to continue to work towards the EU membership. The continuation of the normalisation of relations with Kosovo is expected but it is very hard to forsee how negotiations will evolve. Surely, 2015 will not be as successful as 2013 was for Serbia-Kosovo relations. In domestic politics bigger shifts are not expected to happen in 2015. Vučić’s Government will remain stable but its popularity should lower, due to the Government’s new savings agenda. TOP RISK • Raising Public Debt • Dinar Depreciation • Growing Unemployment and Poverty Rate • Right Extremism

TOP OPPORTUNITIES • Growth of Exports to Russia due to Russian Embargo Towards the EU • Strong Coalition Government

TOP CHALLENGES •

Flood Damage Sanation

• EU Negotiations • Normalisation of Relations with Kosovo • Russia and EU Pressures • Low Public Support for EU and NATO Membership

62


Serbia

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

+

Number of Inhabitants: 7.18 million

Social Uncertainties

+

GDP per Capita: 5,924 $ Currency: Serbian Dinar Candidate for EU Membership

Weaker Investment Environment In 2015 the Investment Environment in Serbia will be less stable than it was in 2014. Expected diplomatic pressure from the EU on one side and Russia on the other will, together with the traditionally weak payment discipline and the low value of Serbian Dinar to Euro, weaken the Investment Impediments indicator. Due to the new agreement with the IMF, new austerity measures are expected to be adopted in 2015, which could lead to new public riots. Politics Indicator, however, will remain stable in 2015.

Political Environment The Government will remain stable but the weak economy and the planned austerity measures could reduce its popularity and consequently slightly increase Political Uncertainties in 2015. Šešelj’s return to Serbia will not influence the country’s path to EU. The planned local elections will increase populism, but this will not bring significant political changes.

Key Political Developments in 2015

63


Serbia Number of Inhabitants: 7.18 million GDP per Capita: 5,924 $

Uncertainties 2015 vs 2014

Political Uncertainties

+

Currency: Serbian Dinar Candidate for EU Membership

Economic Uncertainties

+

Social Uncertainties

+

Economic Environment 2015 will be a hard year for Serbia. The consequences of the 2014 spring floods will remain visible in 2015, reducing the predicted GDP growth. GDP might contract as much as -2.0 % in 2015. This, together with the cancellation of the South Stream project, increases Economic Uncertainties in the country. The instability of public finances will continue and will have a long-term impact on domestic spending and unemployment rate, as well as on the public opinion. Tensions between the EU and Russia will continue to have a rather negative impact on Serbia’s economy and could even further reduce the appeal of its investment environment.

Social Environment Social Uncertainties will increase. The austerity measures will result in lower wages, pensions and dismissal of 25.000 employees in the public sector which will lower the public support for the otherwise popular Government. This could lead to some protests. Unemployment rate will remain high and the domestic consumption is not expected to pick up.

Key Economic and Social Developments in 2015

64


Number of Inhabitants: 3.87 million GDP per Capita: 4,940 $ Currency: Convertible Mark Potential Candidate; EU froze negotiations with BiH in February 2014

5.9 BiH 65


BiH

Uncertainties 2015 vs 2014

Number of Inhabitants: 3.87 million

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

2.1

0.7

3.5

Inflation (%)

-0.1

1.1

1.5

Public Debt (gross, % GDP)

42.5

46.1

46.0

Unemployment (%)

27.0

25.5

24.5

GDP per Capita: 4,940 $ Currency: Convertible Mark Potential Candidate; EU froze negotiations with BiH in February 2014

-

Social Uncertainties

+

Source: IMF

Bosnia-Herzegovina (BiH) remains one of the poorest countries in Europe with, according to Eurostat, its GDP per capita in PPS reaching only 29 % of the EU28 average. Unemployment, poverty and various conflicts are still haemorrhaging the country. The complex administrative structure, which was established by the Dayton Agreement in 1995, and constant enforcement of specific views of the two Entities - Republic of Srpska and the Federation present a large obstacle in the socioeconomic development of the country. This hinders BiH’s path towards the EU. Moreover, due to the slow progress BiH was making in EU integration process and the lack of needed reforms adopted by the authorities, the European Commission decided to end negotiations in February 2014, after seven years of discussions. This will have a negative impact on the already weak business environment, presence of corruption and organised crime as well as on the overall political, economic and social state of the country.

INVESTMENT ENVIRONMENT IN 2014 The country’s Investment Environment in 2014 was moderately unstable. Protests in February instigated by weak payment discipline, high unemployment and poverty rate and the overall dissatisfaction with the socioeconomic state, are reflected in the Economic-Social Conditions Indicator and the Politics Indicator. The peak of instability was reached before the autumn general elections. Corruption remains a systematic problem. Basic principles of the rule of law are not respected, which increases Investment Impediments, diplomatic pressures and lowers the appeal of BiH’s Investment Environment. 66


Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

-

Social Uncertainties

+

BiH Number of Inhabitants: 3.87 million GDP per Capita: 4,940 $ Currency: Convertible Mark Potential Candidate; EU froze negotiations with BiH in February 2014

Economic Environment BiH remains a poor and economically weak country. High unemployment (according to some estimates up to 40 %), grey economy and high presence of corruption present a huge obstacle for the economic development of the country. There have been some arrests of officials suspected of corruption and fraud, but no trials have commenced thus far. The economy, which has not fully recovered since the war, was in 2014 slowly improving and at the beginning of the year, BiH was on its way to reduce the deficit to 1.7 % of the GDP, as agreed with

Political Environment

the IMF. However, in May 2014 came the devastating

Political Uncertainties in 2014 were widely spread. The

floods, which caused damages reaching around 10

Political Environment was weakened starting with the

% of the country’s GDP. The costs of reconstruction

European Commission’s decision in February 2014

after the floods increase Economic Uncertainties.

to end negotiations with the country. The reason for this decision is due to the slow progress of the

Social Environment

country on all levels as well as in the lack of political

Weak economic situation, weak payment discipline,

will for needed structural, political and economic

disrespect for human rights, low freedom of the media,

reforms. Constant calls for secession by the Republic

high unemployment and poverty rate as well as the

of Srpska further weaken the Political Environment

overall disappointment with politics in February 2014

and are a clear example of the diametric political

caused the greatest protest the country has seen since

interests present in the country. In October general

1995. The movement was strongest in the Federation,

elections were held which ended the political crisis

where four out of the 10 canton prime ministers

caused by a very slow and inefficient response of the

resigned, causing not only Social, but also Political

politicians after the May floods. However, it is not

Uncertainties to increase.

expected the result of the rather democratic elections will bring any major changes to the country’s politics.

67


BiH

Uncertainties 2015 vs 2014

Number of Inhabitants: 3.87 million

Political Uncertainties

GDP per Capita: 4,940 $ Currency: Convertible Mark Potential Candidate; EU froze negotiations with BiH in February 2014

Economic Uncertainties

-

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 General elections held in autumn 2014 should, at least temporary, bring more political stability to the country. Consequently, we expect the Investment Environment in 2015 to be slightly more attractive. Expected calls for secession of Republic of Srpska by its president Milorad Dodik will have a large influence on the political stability. Dodik’s sympathy for Russia and Vladimir Putin could have positive political and economic consequences for the Republic of Srpska, but negative for BiH as a whole, moving it even further from becoming a member of the EU. Due to high-predicted costs of flood damage repairs, GDP growth in 2015 could be lower than expected or even negative, putting additional pressure on the overall weak socioeconomic state of the country. Economic issues, promise of more jobs, higher income and better life, will be evident in traditionally populist political statements of all major political parties. Unemployment is expected to remain high, especially amongst young, more people are expected to move away in search for a better life, putting additional pressure on the already relatively unstable public trust and opinion. TOP RISK • Danger of a New Political Crisis • High Unemployment and Poverty Rate could again Manifest in Social Clashes • Negative Economic Growth • Strengthening of Relations between Republic of Srpska and Russia • Growing Dependence on International Help

68

TOP OPPORTUNITIES • Growth of Exports to Russia because of Russian Embargo for EU • Low Labour Costs

TOP CHALLENGES • Flood Damage Sanation • EU Negotiations • Fight against Corruption • Rising Poverty Rate


BiH

Uncertainties 2015 vs 2014

Political Uncertainties

â‰

Economic Uncertainties

-

Number of Inhabitants: 3.87 million

Social Uncertainties

GDP per Capita: 4,940 $

+

Currency: Convertible Mark Potential Candidate; EU froze negotiations with BiH in February 2014

Stable Politics to Improve the Investment Environment In 2015 the Investment Environment in BiH is, due to the temporary greater political stability, expected to slightly improve. Economic progress will be slow, challenged by the consequences of the 2014 floods. The large costs of flood repairs are still unknown and will influence the GDP growth in 2015. Unemployment and poverty rate are not expected to decrease. The already fragile public trust in the work of BiH politicians and institutions will remain low. The country will remain highly dependent on the international aid.

Political Environment Political Uncertainties in 2015 will remain as present as in 2014. Dodik will continue with its anti-EU and pro-Russian rhetoric, causing an even greater divide between the Federation and the Republic of Srpska. We expect EU’s influence to increase as the Member States, especially Germany, are convinced it is time for BiH to make some progress towards joining the EU. Due to the raised pressure we expect some progress to be made.

Key Political Developments in 2015

69


BiH

Uncertainties 2015 vs 2014

Number of Inhabitants: 3.87 million

Political Uncertainties

GDP per Capita: 4,940 $ Currency: Convertible Mark Potential Candidate; EU froze negotiations with BiH in February 2014

Economic Uncertainties

-

Social Uncertainties

+

Economic Environment In general terms, economic situation in 2015 will be difficult. The negative impact of the floods will only be evident in 2015, causing additional pressure on the country’s public finances. It is expected IMF will offer a new loan to BiH but under stricter conditions, as the country failed to meet the conditions made with the previous loan. Nevertheless, we do not expect politicians will be able to surpass their individual interests and adopt the needed structural reforms. Politics will continue to interfere in the economy, making any kind of economic progress impossible.

Social Environment Social Uncertainties in 2015 will increase due to the expected lower public support for the inactive politicians and politics. Unemployment and poverty rate (some 20 % of BiH population live under the poverty line) will remain high and could trigger new protests as well as raise ethnic, religious and social tensions in the country. Speculations about the presence of ISIS soldiers raise questions on the potential influence the ISIS ideology could have on the country’s Muslim population.

Key Economic and Social Developments in 2015

70


Number of Inhabitants: 11.1 million GDP per Capita: 21,857 $ Currency: Euro Member of the EU since 1981

5.10 Greece 71


Greece Number of Inhabitants: 11.1 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

-3.9

0.6

2.9

Inflation (%)

- 0.9

- 0.8

0.3

Public Debt (gross, % GDP)

175.1

174.2

171.0

Unemployment (%)

27.2

25.8

23.8

GDP per Capita: 21,857 $ Currency: Euro Member of the EU since 1981

+

-

Social Uncertainties

+

Source: IMF

After six consecutive years of recession, Greece recorded positive economic growth in 2014. This comes as a result of strengthening demand in Europe and improving export performances. Notwithstanding this improvement, Greece continues to face important challenges, such as weak domestic demand, high unemployment rate, vast public and private debt, high rate of nonperforming loans, widespread tax evasion and social tensions. The latter is mainly due to comprehensive austerity measures, imposed by the “troika” (IMF, EU, ECB), which resulted in the increase of poverty, unemployment and income inequality. The outcome of the 2014 European elections confirmed the rising popularity of the radical left Syriza party, which received more votes than the ruling New Democracy centre – right party.

INVESTMENT ENVIRONMENT IN 2014 In 2014, the most problematic indicators of Investment Environment were Investment Impediments and Economic – Social Conditions. This comes as a result of a highly leveraged corporate sector which is experiencing severe shortages of loans, increased fiscal pressures and payment delays. Many companies need further capital increases while high levels of corruption and unfavourable tax regulations continue to affect many aspects of the economic and commercial life. 72


Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

-

Social Uncertainties

+

Greece Number of Inhabitants: 11.1 million GDP per Capita: 21,857 $ Currency: Euro Member of the EU since 1981

Economic Environment As part of the agreement with the IMF and the EU, Greek Government has begun some structural reforms. Positive results of such reforms and austerity measures enabled the Government to borrow again on the international capital markets for the first time in four years. The risk premium on Greek sovereign debt has dropped to a level prior to the 2010 rescue plan. Small and Medium Enterprises (SMEs) are facing serious constrains in access to financing. This is not surprising as the rate of the nonperforming loans reached 40 % at

Political Environment

the end of 2013, which is one of the highest in the world.

The ruling coalition between New Democracy and

Enormous public debt (174 % of GDP), limited access

moderate left Pasok is fragile, holding a majority of just two

to financing, fragile banking sector, high unemployment

MPs. The Government must balance the requirements of

and reduced household consumption classified Greece

“troika� for structural reforms, privatisation, budget cuts

as one of the most unfriendly and risky business

and reorganisation of the public sector while trying to

environment in the world. Hence, the state of the Greek

tackle the reduction of the unemployment rate as well as

economy is still very fragile as reflected by our Economic

meet the demands of the Greek people for better living

Uncertainties indicator.

standards. Widespread social tensions and calls for a change of government denote the outcome of the 2014

Social Environment

European elections, where the radical left Syriza and

Social conditions are also harsh as 34.6 % of Greeks

extreme right Golden Dawn won a landslide victory. This

in 2013 lived below the poverty line, while the youth

has led to the rise in anti-Semitism and ethnic violence.

unemployment reached 49.3 % in August 2014 (highest in EU). Furthermore, the brain drain is increasing as professionals and skilled workers seek opportunities abroad and pensions have been cut by almost 50 % since the beginning of the crisis.

73


Greece Number of Inhabitants: 11.1 million

Uncertainties 2015 vs 2014

Political Uncertainties

+

GDP per Capita: 21,857 $ Currency: Euro Member of the EU since 1981

Economic Uncertainties

-

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 In 2015 Greece’s Investment Environment will be exposed to challenges in social and political aspects. Although parliamentary elections are scheduled for June 2016, Syriza’s victory in 2014 European elections and lack of parliamentary majority to elect the President of the country, implies significant possibility of early general elections in 2015. Greece’s Government plans for a smooth exit from its international bail-out are not standing on solid ground. A sharp rise in bond yields at the end of October 2014 has stymied the Government’s plan to borrow about 9 billion EUR abroad in 2015 to meet debt repayments and ease the impact of austerity measures. Instead of that, we expect the Prime Minister, Antonis Samaras, will have to negotiate a new credit line with the European Union or, worse, accept 15 more months of tough supervision by the IMF, in return for 12 billion EUR. The latter would definitely spur additional social tensions and general strikes in the public sector and would be a convenient playground for early general elections in 2015. In return for the Greek Government’s efforts, Eurozone leaders have considered additional debt relief that has been sought by the current Government. In light of a possible election victory, Tsipras has begun to soften his views on Greece’s bailout.

TOP RISK

TOP OPPORTUNITIES

• Early General Elections in 2015

• EU Funding

• Risk of Additional Social

• Privatisation

Tensions and General Strikes in The Public Sector • Growing Anti-semitism and Ethnic Violence

• Recovery of Tourism • Low Labour Costs • Highly Educated and Skilled Workforce

TOP CHALLENGES • Exit from International Supervison under IMF, EU, ECB and Partial Public Debt Write Off • Access to Financing • Inefficient Government Bureaucracy • Corruption • Tax Rates and Regulations

74


Greece

Uncertainties 2015 vs 2014

Political Uncertainties

+

Economic Uncertainties

-

Number of Inhabitants: 11.1 million

Social Uncertainties

+

GDP per Capita: 21,857 $ Currency: Euro Member of the EU since 1981

Deterioration of the Politics and Security Situation Indicators is expected In 2015 the Investment Environment will be less stable as it was in 2014. We expect a decline in political stability due to growing populism and further deterioration of the security situation, as a consequence of possible social tensions. Economic-Social Conditions will be partially improved, due to higher economic growth, lower unemployment rate and reduction of public debt.

Political Environment Greek opposition leader Alexis Tsipras refused to support any presidential election candidate. In order to be elected, the President needs the support of 180 deputies in Greece’s 300seat parliament. In a situation where the coalition has only 153 seats, the Government would have to rely on the support of Tsipras’s Syriza’s 71 deputies or on other smaller parties. This implies high probability for early elections where left-wing Syriza can win with a huge support. The rising populism and a growing support for radical political leaders is reflected in our Political Uncertainties Indicator.

Key Political Developments in 2015

75


Greece Number of Inhabitants: 11.1 million GDP per Capita: 21,857 $

Uncertainties 2015 vs 2014

Political Uncertainties

+

Currency: Euro Member of the EU since 1981

Economic Uncertainties

-

Social Uncertainties

+

Economic Environment In 2015, macroeconomic indicators, such as economic growth, rate of unemployment and ratio of public debt, will start to improve. All this suggests the implemented structural reforms are starting to pay off and Economic Uncertainties are expected to decrease. Notwithstanding this better performance, Greece still has to address a number of issues. More precisely, further round of bank recapitalisation in order to improve bank balance sheets, further implementation of structural reforms required from “troika”, boosting innovation capacity, improving the functioning of its institutions and tackling the wide-spread corruption. Possible victory of populist political parties can threaten the implementation of those reforms.

Social Environment Government’s plan to borrow about 9 billion EUR abroad in 2015 will be conditioned by the financial institutions which would require additional wage cuts and a reduction of employees in the public sector, as well as further privatisation in education and healthcare system. Fiscal austerity in combination with high unemployment can spur additional social tensions, hence we predict Social Uncertainties will increase.

Key Economic and Social Developments in 2015

76


Number of Inhabitants: 1.86 million GDP per Capita: 3,863 $ Currency: Euro Potential Candidate for EU Membership

5.11 Kosovo 77


Kosovo Number of Inhabitants: 1.86 million

Uncertainties 2015 vs 2014

Political Uncertainties

Economic Uncertainties

2013

2014(f)

2015(f)

GDP growth (%)

3.4

2.7

3.3

Inflation (%)

1.8

1.0

1.6

Public Debt (gross, % GDP)*

9.1

11.0

/

Unemployment (%)*

30.0

30.0

29.0

GDP per Capita: 3,863 $ Currency: Euro Potential Candidate for EU Membership

-

-

Social Uncertainties

+

Source: IMF and World Bank*

Kosovo declared its independence in 2008. Six years later the country, although still not recognised by Serbia and five EU Member States (Spain, Greece, Cyprus, Slovakia and Romania), is a potential candidate for EU membership. Progress towards democratisation, political integration and socioeconomic development is hindered by high presence of corruption and organised crime as well as disputes with Serbia. However, Kosovo is one of the few European countries that recorded a positive economic growth throughout the economic and financial crisis. According to the World Bank, from 2009 until 2013 Kosovo’s GDP grew by 3.5 % on average per annum. However, Kosovo’s current economic model is not sustainable, therefore lower GDP growth is expected in the future.

INVESTMENT ENVIRONMENT IN 2014 In 2014 the Investment Environment in Kosovo was relatively uncertain. The Politics Indicator was weak due to the six-monthlong internal political crisis that started after snap elections in June 2014. The principles of the Rule of Law were not respected; corruption remains a systematic problem and is present at all levels of socioeconomic and political life. Economic-Social Conditions are highly unstable due to the fact that almost one third of inhabitants are jobless. Poverty as well as various ethnic and social tensions are omnipresent. 78


Uncertainties 2015 vs 2014

Political Uncertainties

-

Economic Uncertainties

-

Social Uncertainties

+

Kosovo Number of Inhabitants: 1.86 million GDP per Capita: 3,863 $ Currency: Euro Potential Candidate for EU Membership

Economic Environment Although Kosovo had the highest economic growth in 2014 and a very low public debt, the country’s Economic Environment in 2014 was weak. Economic Uncertainties were high because of the extremely high unemployment and poverty rate. Corruption is widely spread, which raises all three groups of Uncertainties. Exports remained low in 2014 and the level of FDI was too low to finance the deficit.

Social Environment

Political Environment

Social Uncertainties were widely spread in 2014 due to

Political Uncertainties were relatively high throughout

high unemployment and poverty rate. Almost one third

2014. Snap elections in June were expected to resolve the

of the population is unemployed. The national poverty

political instability, but the political crisis deepened instead.

rate moves at around 30 %, which makes the domestic

The EU got involved, pressurising politicians to end the

consumption weak. The country continues to depend

deadlock which was hampering the efforts to normalise

heavily on Diasporas who send money to their relatives

relations with Serbia. It took more than six months to

back home. The conflicts in the northern municipalities

form a ruling coalition, which in the end kept the outgoing

between Kosovars and Serbs further increased Social

Prime Minister Hashim Tachi in the Government, thanks to

Uncertainties in 2014.

a last minute deal in November with Isa Mustafa from the Democratic League.

79


Kosovo Number of Inhabitants: 1.86 million

Uncertainties 2015 vs 2014

Political Uncertainties

-

GDP per Capita: 3,863 $ Currency: Euro Potential Candidate for EU Membership

Economic Uncertainties

-

Social Uncertainties

+

STRATEGIC FORESIGHT 2015 Kosovo’s Investment Environment should slightly improve in 2015, but the challenges the country needs to tackle will remain unaddressed. Reforms adopted in 2014 and the political crisis that lasted six months will have a big impact on the Kosovo’s Investment Environment. Economic growth is expected to slow down, which will make it necessary for Kosovo to develop a new economic model. Increasing domestic productivity is crucial for country’s further development. This, however, will not be possible without strengthening the institutions and effective fight against systematic corruption and organised crime. New job opportunities, improvement of work legislation and educational system are needed to lower the problematic unemployment rate and to reduce the presence of the widespread grey economy. Higher employment rate will consequently lower the country’s dependence on Diasporas and decrease the brain drain of young educated Kosovars, making the country more competitive.

TOP RISK • High Dependence on Germany and Switzerland through the Diaspora • Threat of Ethnic Tensions in The North • Terrorism Threat

TOP OPPORTUNITIES • Approximation to EU and UN will Improve the Overall Development of Kosovo • To Improve the Educational and Health System as well as the Overall Work of the Country’s Institutions

TOP CHALLENGES • Normalisation of Relations with Serbia • High Unemployment and Poverty Rate • Economic Reforms and Making the Business Environment More Attractive for FDI • Fight Against Corruption and Organised Crime

80


Kosovo

Uncertainties 2015 vs 2014

Political Uncertainties

-

Economic Uncertainties

-

Number of Inhabitants: 1.86 million

Social Uncertainties

+

GDP per Capita: 3,863 $ Currency: Euro Potential Candidate for EU Membership

Slight Improvement Expected Although all five indicators will remain highly unstable, the overall Investment Environment is expected to improve slightly in 2015. The expected political stability and the continuation of normalisation of relations with Serbia will be crucial for this. Economy will continue to grow, although at a slower pace. High levels of corruption, unemployment and poverty together with diplomatic pressures will continue to impact Economic, Social and Political Uncertainties in Kosovo in 2015.

Political Environment In 2015 Kosovo is expected to be politically more stable and Political Uncertainties should slightly decrease. The newly established Government is expected to effectively start its work in 2015. The upcoming 2016 presidential elections could increase populism and political party tensions. Tachi’s candidacy is expected to raise public support for the Government because he remains to be one of the most popular politicians. Because of the corruption scandal that broke out in 2014 in EULEX, the support for the EU membership is expected to decrease.

Key Political Developments in 2015

81


Kosovo Number of Inhabitants: 1.86 million GDP per Capita: 3,863 $

Uncertainties 2015 vs 2014

Political Uncertainties

-

Currency: Euro Potential Candidate for EU Membership

Economic Uncertainties

-

Social Uncertainties

+

Economic Environment All the main macroeconomic indicators will remain at approximately the same level. Due to the end of the political crisis and the expected reforms that will boost the attractiveness of Kosovo’s Investment Environment, Economic Uncertainties in 2015 are expected to slightly decrease. However, they will remain at a relatively high level. Kosovo will still have the highest GDP growth and the lowest public debt in the region. Due to the large sums of money sent from Diasporas in Germany and Switzerland, the country will continue to depend on external influences.

Social Environment The public trust in the Government is expected to grow slightly. Unemployment and poverty rate will continue to remain problematic. With the expected continuation of talks between PriĹĄtina and Belgrade, raising ethnic tensions are to be expected. The speculated presence of ISIS sympathizers could influence the presence of a terrorist threat in the country. Hence, Social Uncertainties are expected to increase slightly.

Key Economic and Social Developments in 2015

82


Literature

Uncertainties 2015 vs 2014

• Agency for Statistics BiH. 2014. Statistical Areas. Retrieved from: http://www.bhas.ba/?lang=en. • Croatian Bureau of Statistics. 2014. Statistical Databases. Retrieved from: http://www.dzs.hr/default_e.htm. • European Commission. 2014. Montenegro Progress Report. Retrivied from: http://ec.europa.eu/ enlargement/pdf/key_documents/2014/20141008-montenegro-progress-report_en.pdf. • Hellenic Statistical Authority. 2014. Statistical Themes. Retrieved from: http://www.statistics.gr/portal/page/portal/ESYE. • International Monetary Fund. 2014. Data and Statistics. Retrieved from: http://www.imf.org/external/data.htm. • Kosovo Agency of Statistics. 2014. Statistics by theme. Retrieved from: https://ask.rks-gov.net/eng/. • National Institute of Statistics Romania. 2014. Statistical Databases. Retrieved from: http://www.insse.ro/cms/en. • National Statistical Institute. of Bulgaria 2014. Statistical data. Retrieved from: http://www.nsi.bg/en. • Statistical Office Albania. 2014. Figures. Retrieved from: http://www.instat.gov.al/en/Home.aspx. • Statistical Office of Montenegro. 2014. Statistics. Retrieved from: http://www.monstat.org/eng/page.php?id=16. • Statistical Office of the European Communities, Eurostat. 2014. Retrieved from: ec.europa.eu/eurostat. • Statistical Office of the Republic of Macedonia. 2014. Statistics by theme. Retrieved from: http://www.stat.gov.mk/SoopstenijaPoOblasti_en.aspx. • Statistical Office of the Republic of Serbia. 2014. Data. Retrieved from: http://webrzs.stat.gov.rs/WebSite/Public/PageView.aspx?pKey=2. • The Heritage Foundation. 2014. Index of Economic Freedom 2014. Retrieved from http://www.heritage.org/index/ranking. • The World Bank. 2014. Doing Business 2015. Retrieved from: http://www.doingbusiness.org/. • Turkish Statistical office. 2014. Statistics by Theme. Retrieved from: http://www.turkstat.gov.tr/UstMenu.do?metod=kategorist. • World Economic Forum. 2014. The Global Competitiveness Report 2014-2015. Retrieved from: http://www.weforum.org/reports/global-competitiveness-report-2013-2014.

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